General Awareness

Rising prices of essential commodities in India

General awareness on current topics is essential as not only you will be getting questions on GK in various MBA entrance exams but it will be useful for Essay writing test and WAT also.

Today, you will read General Awareness Topic : Rising prices of essential commodities in India

In India, inflation or price rise is not just an economic concept but they are also a political tool, often used by the opposition parties to launch attack on the ruling government. But in case of price rise of essential commodities, price rise is more political than economic factor. Very often, there is uproar in Parliament as political parties jostle to grab as much mileage as possible from the government's apparent failure to curb inflation, as they try to sidle up to the aam aadmi who has been worst hit by skyrocketing prices. It is because the people of lower strata are most severely affected by the rising prices, and if the price rise is in essential commodities, damage is more severe.

Commodities classified as essential under the Essential Commodities Act 1955 includes cattle fodder, oil-cakes and other concentrates, coal, including coke and other derivatives, component parts and accessories of automobiles, cotton and woolen textiles, few drugs, foodstuffs, including edible oil-seeds and oils, iron and steel, including manufactured products of iron and steel; paper, including newsprint, paperboard -and straw board; petroleum and petroleum products; raw cotton, food crops etc.

In the last five years, the prices of eight essential commodities have gone up by nearly 72 percent and on the contrary the per capita income have gone up by 38 percent of average Indian in metros, according to the latest study undertaken by apex chamber ASSOCHAM.

Demand as well as supply, both factors are responsible for rise in prices of essential commodities. Apart from increasing population which itself is a major cause of rising demand, changing food habits are also giving push to demand pull inflation. Growing demand for pizzas is one big example where large quantities of cheese and butter are used. The price of milk and milk-based products in India is set to surge on the back of a variety of natural and human factors, including a shortage during monsoon months. Prices will be further impacted by the upcoming festival season which sees a spike in consumption of milk-based products, especially sweets.

On the supply side, unfavorable weather conditions also resulted in the short supply of commodities and consequently pushed their prices up. Lack of warehousing facilities, cold storages also results in the post harvest losses which are estimated to the tune of one-third of the total produce. An abnormally high percentage of fruits and vegetables goes wasted because of lack of cold-storage facilities. Thus post harvest losses also contribute to the short supply of food crops.

The sharp increase in prices of wheat and rice will have an inflationary impact on essential commodities as open market prices of both commodities were ruling slightly higher than the above the poverty line prices. Many essential commodities like petroleum products, pulses, fertilizers are either imported or are produced with imported intermediate goods. Price of such commodities depends on the international prices and as over all global prices of these commodities is increasing, pressure on domestic prices is bound to happen. Even in the case of export based goods produced in the country, if international prices of such commodities are soaring, there is an upward pressure on domestic prices as well because the producers will tend to sell these products in foreign markets where they are likely to fetch better prices. It may also create an scarcity in domestic market.

Moreover, market is also dominated by manipulators, fixers, fly by operators, corporate gamblers. Many allege that prime reason behind the rising essential commodities is that we created a commodity exchange like Multi Commodity Exchange (MCX) and other like commodity exchanges where market can be manipulate within hours according to one’s own wish. Moreover, it has nothing to do with our production, distribution, monsoon and other factors; still it effects the commodity prices. The argument is true to some extent but, such exchanges have their own benefits too.

The inflation can be controlled to the large extent if the government gives full freedom for farmers to sell their agricultural produce anywhere in India without any restriction and ensure free movement without taxing the same. All the agricultural produce is controlled by market forces which include arhatiyas, hoarders, black marketers and other rich and traditional traders. The prices of goods are decided by these individuals. They create the artificial shortage and price rise. The farmers cannot sell their agriculture produce directly due to different reasons. The real farmers are getting 1/3rd of the price. Rest of the profit is swallowed by the middleman and traders only.

Many suggest deregulation of prices of essential commodities as market forces are supposed to efficiently allocate the resources. However, it is also necessary to provide affordable prices to the vulnerable sections of the society. But indeed, comprehensive reforms, development of agriculture infrastructure, elimination of hoarders and black marketers etc is necessary to eliminate the artificial scarcity plaguing the economy.